BUS 421 Study Guide - Final Guide: Information Asymmetry, Efficient-Market Hypothesis, Capital Asset Pricing Model
16 Dec 2017
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Strong form efficiency: security prices reflect all information, not just information that is publicly available (unlikely scenario) Efficient securities market (semi-strong): security prices traded on the market fully reflect all information that is publicly known. Informed investors: investors that spend considerable time and money to use information sources to guide their investment decisions and quickly act on it. Logical inconsistency process: if prices fully reflect all available information, there is no motivation for investors to get information; hence, prices will not fully reflect available information. Noise traders: people that buy or sell securities for a variety of unpredictable reasons (i. e. at random) that affect a security"s market prices. Fundamental value: value a share would have in an efficient market is there is no inside information (i. e. ideal situation where all existing information about the share is publicly available) Behavioural economics: cognitive biases often prevent people from making rational decisions.
